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How to Navigate a Market Downturn




How to Navigate Market Crashes and Corrections – It’s All About Being Prepared!

WINTER COMES EVERY YEAR AND IT’S ALWAYS FOLLOWED BY SPRING! Living in Chicago, we know that shortly after Thanksgiving the sun will disappear, it will get cold and winter will be upon us. So, knowing this, we make sure to take out our warm clothes, fill up the snow blower with oil and gas and brace ourselves for frigid temperatures and lots of snow! While we tune in to the weather report and complain daily, eventually spring arrives and we put the bad weather of the past behind us and then look forward to the sunny, warmer days ahead.


The stock market is no different.

Based on more than a 100-years of history with numerous wars, the Great Depression, terror attacks, sky-rocketing inflation, the Financial Crisis of 2008, political drama like Watergate, presidential assassinations, SARS, coronavirus, or anything else you can think of, the short-term outlook may look dire, but the stock market has ALWAYS rebounded. Knowing this should provide comfort to all of us who have our life savings invested. Don’t tell yourself or let the media lead you to believe that “This Time Is Different.”


Here are some facts that should help you prepare for the next market downturn (winter) and stick around for the rebound (spring):


  1. “Corrections” (a drop of 10% or more from its high) have occurred about once a year since 1900. The average correction lasts only 54 days – less than 2 months! In other words, most corrections are over before you know it. Not so scary, right?
  2. “Bear markets” (a drop of 20% or more from its high) have occurred about once every 3-5 years and last for about a year on average.
  3. The stock market rises over time despite many short-term setbacks. Despite a 14.2% average drop every year, the US stock market ended up with a positive return in 28 of the last 37 years.
  4. Bear markets become bull markets and pessimism becomes optimism.
  5. Investments work…Investors don’t. It’s human nature to avoid pain so when the market is falling we want to stop the pain. To do that, we sell out of our investments and move to the safety and comfort of cash. But then we miss the rebound when the investments we had go back up but we’re no longer holding them.


Let’s also keep things in perspective:


  1. When we hear that the market (the Dow Jones Industrial Average) fell 1,000 points on February 24th and was the 3rd largest daily point drop ever, it’s natural to get stressed out. However, it’s the percentage drop that matters, not just the points! The most recent 1,000 point drop equates to a 3.56% loss. That doesn’t even rank as one of the top 20 market declines of all-time. Back on October 19, 1987, the Dow dropped 508 points or 22.61% in one day!!
  2. Understand that when the media reports stats on the market (DOW & S&P 500), they are referring to how a concentrated 100% stock portfolio performed. Guess what? It’s probably safe to say that you do not have 100% of your portfolio in stocks so if the market was down 3.56% in one day, you likely were not.
  3. If the game of investing is to “buy low and sell high,” these downturns actually provide opportunity for long-term investors to buy things on sale.
  4. If you don’t know how much risk you are taking in your current portfolio or the lifestyle that can be supported by your current investments, future pensions or SS, you should become educated on that so that you can make future decisions with confidence.
  5. Make sure that you have a crisis plan…BTW, the worst time to draft a crisis plan is in the middle of a crisis so take a deep breath and breathe.


You can learn more about our educational Second Opinion Review by following this link.


Now may be a good time to schedule a meeting to make sure that your current investments reflect your current priorities and comfort zone.


The opinions and forecasts expressed are those of the author, and may not actually come to pass. This information is subject to change at any time, based on market and other conditions and should not be construed as a recommendation of any specific security or investment plan. Past performance does not guarantee future results.

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